Intel's Micro-Server Efforts Get No Respect

Over the past several years, there has been growing interest in developing ARM Holdings (NASDAQ: ARMH) -based server processors from a variety of vendors including Advanced Micro Devices (NASDAQ: AMD) , Applied Micro (NASDAQ: AMCC) , and others in the hopes of grabbing a piece of Intel's (NASDAQ: INTC) very lucrative data-center pie.

So far, however, the ARM-based vendors have yet to deliver, with many of these players still a way out from getting competitive products built on modern semiconductor manufacturing technology to market. On the other hand, Intel has executed well, particularly with its 22-nanometer FinFET lineup of products that has been in the market since late 2013.

Why doesn't Intel get any respect in micro-servers?The simple fact is that many investors believe that Intel has one or more of the following fundamental disadvantages relative to the various ARM startups:

Claim: Intel is at an inherent power disadvantage thanks to X86. While this is an easy marketing point to use on investors, the reality is that these days the overhead associated with some of the key "talking points" that ARM (and other RISC vendors) like to bring up is negligible. Some will cite recent comments from chip guru Jim Keller that ARM is inherently more efficient, but that's actually quite perplexing given that it was AMD's own Fred Webe, who helped defined the X86-64 extensions to Intel's X86, that pointed out that the overhead was negligible years ago, when transistor budgets were much smaller -- meaning that any overhead is even less important today than it was all those years ago.

Claim:Intel is at a cost and pricing disadvantage. According to some, ARM chips will somehow be "cheaper" than Intel chips. The flaw in that reasoning is that, given that the unit volumes in this market are relatively small compared with, say, mobile chips, the gross margins per unit need to be quite high to offset the substantial (and growing) R&D required to develop competitive products. Further, given that higher one-time costs for significant power and energy savings over the lifetime of the hardware is a trade-off most data center operators will make all day, it's unlikely that a company can win simply by engaging in a price war here.

Claim: There are lots of competitors, so Intel's share must go down. While it seems that a lot of companies are taking out ARM licenses in a bid to try to cash in on this trend, look at what is happening in mobile systems on a chip -- the vendors are dropping one by one, the most recent of which was Broadcom. R&D barriers are tough to overcome even if a small startup can "theoretically" be a player in a market with a large total addressable market. The same pattern is likely to repeat in data centers, and Intel's scale, manufacturing lead, and design prowess and IP leverage will serve it well here.

Intel is the only one shippingIntel has already rolled out its highly integrated 22-nanometer FinFET parts known as Avoton and Rangley for micro-servers and communications, respectively. Applied Micro is still trying to get its first-generation 40-nanometer X-Gene to market, and AMD is set to launch its first 28-nanometer products here in Q4 2014.

Intel's competitive positioning is quite favorable, and what's even more interesting is that Intel has had these parts in the market since Q4 2013. AMD's upcoming "Seattle" product based on ARM's Cortex A57 and built on a 28-nanometer process should be more competitive than X-Gene, but on a performance/power perspective for general purpose computing, it is unlikely to do all that well relative to the Intel products.

To AMD's credit, it does integrate more accelerators and networking capability than today's Avoton does, but recent details about Intel's upcoming Broadwell-DE, which is a highly integrated system on a chip based on Intel's "big" cores and built on its 14-nanometer FinFET process, suggest that Intel will neutralize AMD's edge here while offering more efficient computing performance in roughly the same timeframe of late 2014 to early 2015.

Foolish bottom lineIntel's position of leadership today in the data center is very hard won and is the product of immense R&D leverage, world-class manufacturing, and economies of scale that few could hope to match. The hype around ARM servers is likely to turn out to be just that, with real-world market share gains against Intel mirroring ARM's share gains against Intel in Windows PCs as a result of the launch of Windows RT (i.e., negligible), even though expected that opening up Windows to ARM would drive significant share loss for Intel.

That said, it'll be important to watch for further developments in this space. While I do believe this thesis is sound, surprises and unexpected twists and turns do happen. ARM servers are unlikely to gain the share that some think they will, but as always, only time will tell.

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We will have the best first half of the year in DCSS [the "dense server" business] in forever. (Feldman said)

If Feldman is right, then Intel should be concerned about the future. Let´s wait.

This has been planned for a long time. More than anything, it is that the way we work in The Valley, you do your work-life balance sequentially, not in parallel. At some point, you have a debt on the life side of the work-life balance. Your wife says, maybe it’s time to take some time. In my kind of work, when you want a break, you can’t just take three or four months off from the job. So, I’m taking the sabbatical, effectively. I had an extraordinary run at AMD and worked with very good people. Lisa [Su, named COO today] is an extraordinary leader. She is a kick-ass person, and a pleasure to work for, a straight shooter and very fair. And Rory [Read, CEO] is a first-rate CEO. We will have the best first half of the year in DCSS [the "dense server" business] in forever. Dhiraj Mallick, who was VP of engineering for me at SeaMicro, and now runs that business unit, is a very capable leader. Saeid [Moshkelani, overseeing semi-custom chips] is a really good guy. Suresh [Gopalakrishnan], running the [server] CPU biz, is a first-rate guy.

I'm sure the same things were said about DEC back in the day. Go on trying to plug the holes in your sinking ship, Ashraf.

"Intel is the only one shipping"

Little hasty, aren't we? Sampling, or volume? AMD's Seattle is already sampling and from what the whispers say it is being received very well. The world is moving to ARM. It may take some time, but you can't stop it with your Intel-pumping drivel.

Are you scared of the ARM server invasion that you want to defend Intel in each and every article. You don't see ARM ecosystem making any dent in servers while you continue to believe Intel will take significant market share in the mobile market. Thats why everybody calls you a typical Intel fanboy and heavily biased with no sense of reality. By 2016 you will see the real world situation play itself out. Intel has a market share of 97+% in the server market. Intel has everything to lose while for the ARM ecosystem its all gain. The magnitude and extent of market share erosion might differ but almost no one doubts that Intel's share is going down over time. Add to the fact that ARM's server chip designs can be customized according to the workloads and customer needs with specific accelerators integrated easily and its easy to see the advantages. ARM ecosystem will do to x86 and Intel what Intel did to RISC UNIX servers like IBM, DEC, HP, SUN, SGI.

This is called the democratization of the server market. Thats something you as an Intel pumper won't understand. Was Intel able to stop the cannibilization of PCs by tablets/smartphones. No. Similarly it cannot avoid the cannibilization of the x86 servers. Over time ARM will compete with x86 in each and every segment of the computing - servers,desktops,laptops,notebooks and smartphones.

You see this war between Intel and ARM is going to be crucial for TSMC,Samsung and GF as these 3 companies need to help ARM ecosystem take market share so that the sales volume required to fund the massive fab investments and process R&D continue to happen. It will happen much to your dismay.

"So far, however, the ARM-based vendors have yet to deliver, with many of these players still a way out from getting competitive products built on modern semiconductor manufacturing technology to market."

More hyperbole.

Everybody and their dogs know that ARM Microservers will not deploy unitl late 2014.

So stop trying to pretend that there is a technical delay and something is amiss.